Dominated Options in Health-Insurance Plans

57 Pages Posted: 12 Mar 2018 Last revised: 24 Feb 2023

See all articles by Chenyuan Liu

Chenyuan Liu

Wisconsin School of Business; Tsinghua University - School of Economics & Management

Justin R. Sydnor

University of Wisconsin - Madison

Date Written: March 2018


Recent studies have found that many people select into health plans with higher coverage (e.g., lower deductibles) even when those plans are financially dominated by other options. We explore whether having dominated options is common by analyzing data on plan designs from the Kaiser Family Foundation Employer Health Benefits Survey for firms that offered employees both a high-deductible (HD) health plan and a lower-deductible (LD) option. In 65% of firms the high-deductible option would result in lower maximum possible health spending for the employee for the year. We estimate that the HD plan financially dominates the LD plan at roughly half of firms across a wide range of possible health spending needs employees might anticipate. The expected savings from selecting the HD plan are typically over $500 per year, often with no increase in financial risk. We present evidence that these patterns may arise naturally from employers passing through large average-cost differences between HD and LD plans to their employees. We discuss the implications of those dynamics for the nature of transfers between employees and the efficiency of health spending.

Suggested Citation

Liu, Chenyuan and Liu, Chenyuan and Sydnor, Justin R., Dominated Options in Health-Insurance Plans (March 2018). NBER Working Paper No. w24392, Available at SSRN:

Chenyuan Liu (Contact Author)

Wisconsin School of Business ( email )

975 University Avenue
Madison, WI 53706
United States

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084


Justin R. Sydnor

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

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